Yesterday, I noted that US natural gas production has yet to reflect the recent prices declines. Today, I am reporting basically the same story for crude oil.
The US government agency the Energy Information Administration (EIA) reports monthly crude oil production with a 2 month lag; December production was published on 27 February. December saw oil production averaging 9.2 million barrels per day, a rise of 17.4% year on year. The two following charts are taken from the EIA’s weekly oil report here (click for larger images).
The chart of futures prices below shows the 50% decline between the summer of 2014 and the beginning of 2015.
As discussed in my post at the beginning of February, it will take another six to 12 months before futures hedges roll off and rapid shale field depletion rates mean that additional capital investment is required in order to sustain production levels. Such investment will only be forthcoming if the new oil price environment is countered by further technology driven cost savings.
My sense is that new investment projects won’t hit their required hurdle rates and so won’t go through. If so, production will first plateau and then fall. As always, we have to let the data speak on this one.